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President Signs Patent Reform Bill Banning New Tax Strategy Patents

On
Friday morning, President Barack Obama signed into law the
Leahy-Smith America Invents Act (HR
1249), which reforms the U.S. patent
system and stops the granting of patents for tax strategies. The
bill had been passed by the Senate earlier this month and by the
House of Representatives in June.

Under
the act, any “strategy for reducing, avoiding, or deferring tax
liability” is deemed to be “prior art” under patent law, and
therefore not patentable. The tax strategy provision applies to “any
patent application that is pending on, or filed on or after” Sept.
16, 2011.

The
act defines “tax liability” as any liability for tax under federal,
state, local or foreign law. The provision covers taxes imposed by
any “statute, rule, regulation, or ordinance that levies, imposes,
or assesses such tax liability.” It does not, however, apply to tax
preparation and other software, explicitly excluding any “method,
apparatus, technology, computer program product, or system, that is
used solely for preparing a tax or information return or other tax
filing” or that is “used solely for financial management, to the
extent that it is severable from any tax strategy or does not limit
the use of any tax strategy by any taxpayer or tax advisor.”

Tax
strategies became patentable, as business methods, under a 1998
court decision (State St. Bank & Trust v. Signature
Fin. Group, 149 F.3d 1368 (Fed. Cir. 1998)). Since then, the
U.S. Patent and Trademark Office has granted more than 160 patents
on tax strategies, covering a wide range of activities including
real estate transactions, charitable giving, retirement planning and
the granting of stock options. Another 167 applications were pending
when the act was signed into law. Existing tax strategy patents are
not affected by the act, but tax strategies in pending patent
applications will be deemed prior art under the new law.

AICPA
President and CEO Barry Melancon welcomed Friday’s enactment, saying
in a prepared statement, “Tax
strategy patents are the equivalent of private tollbooths that block
tax compliance options and could cost Americans more money. We are
grateful that Congress and the president recognized this and acted
to correct the inequity.”

The
AICPA and state CPA societies have been advocating for legislation
to address tax strategy patents for the past five years, raising
concerns in a series of letters to Congress and the IRS during that time.

TAX NEWS

President Barack Obama signed legislation that retroactively extended more than 50 expired tax provisions for 2014, allowing taxpayers to take advantage of a host of tax incentives during this filing season.

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